Q41 Mr Bacon: That is not correct?
Mrs Dugdale: May I just help with this?
Q42 Mr Bacon: Yes.
Mrs Dugdale: On the event of Trust default we would have to repay the senior debt outstanding.
Q43 MrBacon: I am not talking about Trust default, but if the provider fails?
Mrs Dugdale: No, then we would not have to repay the borrowing. What we would have to pay is 95% of the usage fee or the core usage fee less the increased costs to the Trust, or the scheduled senior debt service, and we pay the lower of those three. So we would not have to pay the debt outstanding.
Q44 Mr Bacon: What I understand is this-and I have talked to the National Audit Office about this-that because Octagon borrowed money-and as it happened it was borrowing extra money when they refinanced, they borrowed an extra £100 million or so, which is shown on page 8 in figure 6, which is why it goes from £200 million to £306 million-when they did that I understand that your termination liability also increased. Are you saying that that is not true?
Mr Forden: Our termination liability increases if we terminate; if Octagon fail then we have to, as Mrs Dugdale has set out, service that debt, but that debt is no more than we would be servicing through our payments to Octagon.
Q45 Mr Bacon: NAO, would you like to comment on that? Mr Finlay?
Mr Finlay: I think the situation is that there is this amount of debt outstanding, which is the £300 million. As the Chief Executive of the Trust has said, the Trust would have to service that debt. If the Trust chose to terminate the contract in any event our understanding is that it would be liable for the termination liabilities.
Q46 Mr Bacon: You accept that?
Mr Forden: I accept that.
Q47 Mr Bacon: The point I was making, that debt is now £100 million higher than it was, for no other reason than that Octagon wanted to take its money out early, is it not? It is like what Phillip Green did with BHS. He borrowed money to pay himself a big dividend, and is that not basically what has happened here?
Mr Forden: Partly, but we did take an analysis of the risk of that and our assessment of that risk is shown in table 12, that shows that actually it was a sensible investment risk to take.
Q48 Mr Bacon: It seems to me that Octagon have managed to decrease their risk while taking out money early, and you have admittedly a bit of a refinancing gain, but you have had to increase your risk to do that. I remember when Fazakerly Prison refinanced they increased their return from 16% to 39% while reducing their risk. Is it possible that we could have a league table, if you like, of PFI refinancings showing the percentage internal rates of return at contract letting and the percentage of internal rates of return following the refinancing, so that we can see where the gain is biggest? Is that possible?
Mr Finlay: On Fazakerley?
Q49 Mr Bacon: No, on PFI refinancings in general, so that we can look at them and compare the before refinancing and the after refinancing situation.
Mr Finlay: We will see whether we can get this information.2
Mr Bacon: That would be extremely helpful, and I think my time is up.
Chairman: Jon Trickett.
Q50 Jon Trickett: Can I ask the Comptroller and Auditor General whether he agrees with the statement that this Report which has been put before us has limited effectiveness in evaluating value for money or managerial context in relation to this particular deal?
Mr Burr: The Report certainly does not attempt to reach a judgment as to whether the deal was or was not value for money. I think it provides a lot of contextual information which contributes to such a judgment, but it does not reach a view either way on that.
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